Monday, November 23, 2015



When Wall Street Gets DeFANGed - Look Out Below!

As the stock market labored into Friday's close, CNBS was apparently tying to help with a crawler saying that the S&P 500 was heading for its "best week of the year". 

Then again, the gain of just 1% since New Year's Day is not a whole lot to write home about.

In fact, there were some fireworks in this week's gains, but if history is any guide they were exactly the kind of action that always precedes a thundering bust. To wit, the market has narrowed down to essentially four explosively rising stocks—–the FANG quartet of Facebook, Amazon, Netflix and Google—–which are sucking up all the oxygen left in the casino.

At this week's close, the FANG stocks were valued at just under $1.2 trillion, meaning they have gained $450 billion of market cap or 60% during the last 11 months - even as their combined earnings for the September LTM period were up by only 13%. In a word, the gamblers are piling on to the last train out of the station. And that means look out below!

An old Wall Street adage holds that market tops are a process, not an event. A peak under the hood of the S&P 500 index, in fact, reveals exactly that.

On the day after Christmas last December the total market cap of the S&P 500 excluding the FANG stocks was$17.70 trillion. By contrast, it closed at $17.26 trillion on Friday, reflecting a 2.5% or nearly half trillion dollar loss of value.

And there is growing deterioration down below for good reason. Notwithstanding the FOMC's stick save at every meeting this year, each near miss on a rate hike reminded even Wall Street's most inveterate easy money cry babies that the jig is up on rates.

Sooner or later the Fed would just plain run out of excuses for ZIRP, and now, after 83 straight months on the zero bound, it has. So the truth is, the smart money has been lightening the load all year, selling into the mini-rips while climbing on board the FANG momo train with trigger finger at the ready.

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